A 10%+ Yield Mix for 2026: One CEF, One BDC and One Covered-Call ETF

Income investors chasing double-digit yields for 2026 may find a disciplined three-vehicle approach attractive: a closed-end fund (CEF), a business development company (BDC) and a covered-call ETF. Each vehicle contributes distinct income characteristics—CEF distributions often include leveraged returns and opportunistic total-return strategies; BDCs pay out earnings from leveraged lending to private companies; covered-call ETFs generate option-premium income by writing calls over an equity basket. Combining them can create a diversified high-yield sleeve while smoothing volatility and distribution variability.

Start with the CEF allocation to capture potentially higher yields driven by leverage and active management. Look for funds with reasonable discounts to net asset value, sustainable distribution coverage and transparent leverage practices. CEFs can amplify income but also magnify drawdowns when markets turn, so evaluate manager track record and fee structure.

Add a BDC to the mix for direct exposure to privately originated loans and high current yields. Effective BDC selection hinges on underwriting quality, portfolio diversification, interest-rate sensitivity and the company’s dividend coverage. BDCs can deliver steady cash flow, but credit cycles and non-performing assets are key risks.

Finish the trio with a covered-call ETF to introduce reliable option premium while tempering downside equity exposure. Covered-call strategies tend to outperform in sideways markets and provide a stable yield overlay, though they cap upside participation in strong rallies.

Position sizing matters: a balanced split—such as one-third CEF, one-third BDC and one-third covered-call ETF—can be a starting point, adjusted for personal risk tolerance, tax considerations and income needs. Rebalance periodically and monitor distribution coverage ratios, NAV discounts/premiums for CEFs, BDC credit metrics and the strike-selection logic of covered-call ETFs.

Risks to keep top of mind include interest-rate moves that pressure leveraged funds, credit deterioration within BDC portfolios, and underperformance during strong bull markets for covered-call strategies. Tax treatment varies across vehicles; consult a tax advisor for implications on qualified dividends, ordinary income, and return of capital components.

This three-part “cocktail” is not a one-size-fits-all solution, but it offers a pragmatic framework to target 10%+ yield with diversification across income sources and risk profiles. Perform due diligence on fund-specific details, and view allocations within the context of your broader portfolio goals.